Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended August 31, 2020June 30, 2021

OR

For the transition period from ____________________ to ________________________

Commission File Number 0-22182

PATRIOT SCIENTIFIC CORPORATIONMOSAIC IMMUNOENGINEERING INC.

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code): (657) (657) 208-0890

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X]Yes ☒ NO [_]☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X]Yes ☒ NO [_]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [_]  ☐ NO [X] ☒

On October 15, 2020, 401,392,948August 3, 2021, 7,228,093 shares of common stock, par value $0.00001 per share, were outstanding.

INDEX

EXPLANATORY NOTE REGARDING THE REVERSE MERGER

Unless the context otherwise requires, references to the “Company,” the “combined company,” “Mosaic,” “Patriot,” “we,” “our,” or “us” in this quarterly reportQuarterly Report on Form 10-Q refer to Patriot Scientific Corporation and its subsidiaries immediately following the Reverse Merger, as the Registrant, until its name change to Mosaic ImmunoEngineering Inc. is approved and effective. its subsidiaries (formerly known as Patriot Scientific Corporation). References to “PTSC” refer to Patriot Scientific Corporation prior to the completion of the Reverse Merger (as discussed below) and references to “Private Mosaic” refer to privately held Mosaic ImmunoEngineering Inc. prior to the completion of the Reverse Merger.

This quarterly report on Form 10-Q is filed by Patriot. Reverse Merger

As reported in itsour Current Report on Form 8-K, filed with the Securities and Exchange Commission (the “SEC”) on August 24, 2020 (“Original Form 8-K”), PTSC and Private Mosaic, a Delaware corporation organized on March 30, 2020 (date of inception), entered into a stock purchase agreement (“Stock Purchase Agreement”) on August 19, 2020, whereby one of PTSC’s wholly-owned subsidiaries merged with and into Private Mosaic, with Private Mosaic surviving as the Company’s wholly owned subsidiary (the “Reverse Merger”). On August 21, 2020, the transaction closed (“Closing Date”) in accordance with the terms of the Stock Purchase Agreement. On October 14, 2020, the Company filed Amendment No. 1 to its Current Report on Form 8-K, which amends the Original Form 8-K to include the historical audited financial statements of Private Mosaic and unaudited pro forma financial statements of the combined company.

On the Closing Date, PTSC acquired 100% of the issued and outstanding common stock of Private Mosaic, representing 630,000 shares of its Class A common stock (“Class A Stock”) and 70,000 shares of its Class B common stock (“Class B Stock”) (collectively referred to as “Target Common Stock”). In exchange for the Target Common Stock, the holders of the Class A Stock received 630,000 shares of PTSC’sthe Company’s Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock received 70,000 shares of PTSC’sthe Company’s Series B Convertible Voting Preferred Stock (“Series B Preferred”). Each share of Series A Preferred converts into 5,097.05310.194106 shares of common stock (as adjusted for the Reverse Stock Split) of Patriotthe Company and possesses full voting rights, on an as-converted basis, as the common stock of Patriot,the Company, as defined in the Series A Certificate of Designation. Each share of Series B Preferred converts into 5,734.18511.46837 shares of common stock (as adjusted for the Reverse Stock Split) of Patriot,the Company, possesses full voting rights, on an as-converted basis, as the common stock of Patriot,the Company and contains certain anti-dilution rights, as defined in the Series B Certificate of Designation. On a fully diluted, as converted basis, the holders of Series A Preferred and Series B Preferred, in aggregate, own 90% of the issued and outstanding common stock of the combined company as of the Closing Date.

The Reverse Merger was treated by the Company as a reverse merger in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For accounting purposes, Private Mosaic is considered to have acquired PTSC as the accounting acquirer because: (i) Private Mosaic stockholders owned 90% of the combined company, on an as-converted basis, immediately following the Closing Date, (ii) Private Mosaic directors held a majority of board of director seats in the combined company and (iii) Private Mosaic management held all key positions in the management of the combined company. Accordingly, Private Mosaic’s historical results of operations will replace PTSC’s historical results of operations for all periods prior to the Closing Date of the Reverse Merger and, for all periods following the Closing Date of the Reverse Merger, the results of operations of the combined company will be included in the Company’s financial statements. The Reverse Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

Based on the inception of Private Mosaic on March 30, 2020, the financial condition and results of operations of the Company for the periods presented in this Quarterly Report on Form 10-Q bear no relationship to the future business, financial condition and results of operations of the Company, and are not indicative of the business, financial condition and results of operations of the Company, for any future period. The Company’s future business, financial condition and results of operations will reflect the business, financial condition and results of operations of the Company and its consolidated subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly reportQuarterly Report on Form 10-Q, containsincluding all documents incorporated by reference herein, includes certain forward-lookingstatements constituting “forward-looking” statements within the meaning of Section 27A of the Securities Act, of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act and the Private Securities Litigation Reform Act of 1934,1995, including statements concerning our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, operations, future results and prospects, and we rely on the “safe harbor” provisions in those laws. We are including this statement for the express purpose of availing ourselves of the protections of such safe harbors with respect to all such forward-looking statements. The forward-looking statements in this report reflect our current views with respect to future events and financial performance. In this report, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “estimates,” “may,” “could,” “should,” “would,” “will,” “shall,” “propose,” “continue,” “predict,” “plan” and similar expressions are generally intended to identify certain of the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as amended (the “Exchange Act”), andof the date made. Any forward-looking statement is not a guarantee of future performance.

These forward-looking statements are subject to certain risks and uncertainties, and actual results may differ materially from those in the safe harbor created byforward-looking statements as a result of various factors, including, but not limited to those sections. For more information, see “Partitems shown under “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Cautionary Note Regarding Forward-Looking Statements.”Statements”. You should read this report completely with the understanding that our actual results may differ materially from what we expect. Unless required by law, we undertake no obligation to publicly disclose the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

PART I- FINANCIAL INFORMATION

Patriot Scientific CorporationMosaic ImmunoEngineering Inc.

Condensed Consolidated Balance Sheets

See accompanying notes to unaudited condensed consolidated financial statements

Patriot Scientific Corporation

Mosaic ImmunoEngineering Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

SeeSee accompanying notes to unaudited condensed consolidated financial statements

Mosaic ImmunoEngineering Inc.

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

For the Three Months Ended June 30, 2021

For the Three Months Ended June 30, 2020

Patriot Scientific CorporationMosaic ImmunoEngineering Inc.

Condensed Consolidated Statements of Cash FlowsStockholders’ Deficit

(Unaudited) (Continued)

For the Six Months Ended June 30, 2021

For the Period March 30, 2020 to June 30, 2020

See accompanying notes to unaudited condensed consolidated financial statements.

Mosaic ImmunoEngineering Inc.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

Patriot Scientific Corporation

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited) (1)

See accompanying notes to unaudited condensed consolidated financial statements.

Unless the context otherwise requires, references to the “Company,” the “combined company,” “Patriot,” “Mosaic,” “we,” “our,” or “us” in this quarterly report on Form 10-Q refer to Patriot Scientific Corporation and its subsidiaries immediately following the Reverse Merger, as the Registrant, until its name change to Mosaic ImmunoEngineering Inc. is approved and effective. its subsidiaries (formerly known as Patriot Scientific Corporation). References to “PTSC” refer to Patriot Scientific Corporation prior to the completion of the Reverse Merger (as discussed below) and references to “Private Mosaic” refer to privately held Mosaic ImmunoEngineering Inc. prior to the completion of the Reverse Merger.

1.        Organization and Business

Organization

Mosaic ImmunoEngineering Inc. (referred(the “Company,” “combined company,” “Mosaic,” “we,” “us,” or “our”), formerly known as Patriot Scientific Corporation, is a corporation organized under Delaware law on March 24, 1992. We are a preclinical, development-stage biotechnology company focused on developing and eventually commercializing our proprietary technology designed to activate the innate immune system to treat and prevent cancer and infectious diseases.  Our lead product candidate, MIE-101, is based on a naturally occurring plant virus that is non-infectious in animals and humans but has been shown to act as strong adjuvant that activates multiple Toll-like receptors (“TLRs”) through its natural immune recognition. When injected into a tumor, MIE-101 naturally triggers the body’s innate immune system, thereby altering the tumor microenvironment and directing activated anti-tumor T cells to attack both the injected tumor as well as other tumors throughout the body. Our goal is to advance MIE-101 into human and veterinary studies in 2022 if sufficient funding becomes available.

The Company has two wholly owned subsidiaries: Mosaic ImmunoEngineering Development Company (formerly referred to as “Private Mosaic” prior toPrivate Mosaic in connection with the Reverse Merger, as described below) wasMerger), a corporation organized under Delaware law on March 30, 2020 (date of inception). and Patriot Data Solutions Group, Inc., an inactive subsidiary of PTSC. Patriot Data Solutions Group (formerly known as Crossflo Systems, Inc.) was acquired in September 2008 and was previously engaged in data-sharing services and products primarily in the public safety and government sector. During April 2012, PTSC sold substantially all of the assets in Patriot Data Solutions Group.

On August 21, 2020, we completed a reverse merger transaction pursuant to a stock purchase agreement by and between PTSC (now known as Mosaic ImmunoEngineering Inc.) and Private Mosaic will maintain the legal entity name of Patriot Scientific Corporation as the Registrant (the “Company,” “combined company,” “Patriot,” “Mosaic,” “we,” “us,” or “our”) until its name change to Mosaic ImmunoEngineering Inc. is approved and effective. Patriot Scientific Corporation, together with its wholly-owned subsidiaries, is an early-stage biotechnology company focused on a novel platform technology using immunostimulatory nanotechnology-based therapeutics and vaccines to treat and prevent cancer and infectious diseases (see Note 6).further described below.

Stock Purchase Agreement

On August 19, 2020, PTSCPatriot Scientific Corporation (now known as Mosaic ImmunoEngineering Inc.) and Private Mosaic entered into a stock purchase agreement (“Stock Purchase Agreement”), whereby one of the wholly owned subsidiaries of Patriot Scientific Corporation merged with and into Private Mosaic, with Private Mosaic surviving as a wholly owned subsidiary of Patriot Scientific Corporation (the “Reverse Merger”) (see Note 2). The transaction closed on August 21, 2020 (“Closing Date”) in accordance with the terms of the Stock Purchase Agreement, whereby one of the wholly owned subsidiaries of PTSC merged with and into Private Mosaic, with Private Mosaic surviving as wholly owned subsidiary of PTSC (the “Reverse Merger”) (see Note 2).Agreement.

On the Closing Date, PTSCPatriot Scientific Corporation acquired 100% of the issued and outstanding common stock of Private Mosaic, representing 630,000 shares of its Class A common stock (“Class A Stock”) and 70,000 shares of its Class B common stock (“Class B Stock”) (collectively referred to as “Target Common Stock”). In exchange for the Target Common Stock, the holders of the Class A Stock received 630,000 shares of PTSC’sPatriot Scientific Corporation’s (now known as Mosaic ImmunoEngineering Inc.) Series A Convertible Voting Preferred Stock (“Series A Preferred”) and holders of the Class B Stock received 70,000 shares of PTSC’sPatriot Scientific Corporation’s (now known as Mosaic ImmunoEngineering Inc.) Series B Convertible Voting Preferred Stock (“Series B Preferred”). Each share of Series A Preferred converts into 5,097.05310.194106 shares of common stock of Patriotthe Company and possesses full voting rights, on an as-converted basis, as the common stock of Patriot,the Company, as defined in the Series A Certificate of Designation.Designation (see Note 8). Each share of Series B Preferred converts into 5,734.18511.46837 shares of common stock (as adjusted for the Reverse Stock Split) of Patriot,the Company, possesses full voting rights, on an as-converted basis, as the common stock of the PatriotCompany and contains certain anti-dilution protections,rights, as defined in the Series B Certificate of Designation. On a fully diluted, as converted basis, the holders of Series A Preferred and Series B Preferred, in aggregate, own approximately 90% of the issued and outstanding shares of common stock of the combined company.Company as of the Closing Date.

Private Mosaic was determined to be the accounting acquirer based upon the terms of the Stock Purchase Agreement and other factors including: (i) Private Mosaic stockholders owned 90% of the combined organization immediately following the Closing Date, (ii) Private Mosaic directors held a majority of board seats in the combined organization and (iii) Private Mosaic management held all key positions in the management of the combined company.

Reverse Stock Split

On October 21, 2020 and October 22, 2020, our Board of Directors and majority shareholders, respectively, approved the Reverse Stock Split of one (1) share of our common stock for every 500 shares of our common stock (“1-for-500”). On November 30, 2020, we filed the Amended and Restated Certificate to effect a Reverse Stock Split on December 2, 2020, whereby every 500 shares of the Company’s issued and outstanding common stock were combined into one share of its common stock, except to the extent that the Reverse Stock Split resulted in any of the Company’s stockholders owning a fractional share, which was rounded up to the next highest whole share. In connection with the Reverse Stock Split, there was no change in the par value per share of $0.00001. The accompanying unaudited condensed consolidated financial statements and notes give retroactive effect to the reverse stock split for all periods presented.

In addition, on June 10, 2021 and June 14, 2021, our Board of Directors and majority shareholders, respectively, approved a discretionary reverse stock split whereby our Board of Directors have broad authority to implement a future reverse stock split at a ratio ranging from 1-for-2 to 1-for-4 at any time on or before June 25, 2022 in order to meet the initial listing bid price requirement and other listing regulations of the Nasdaq Stock Market or other national exchanges. The Board believes that listing our common stock on a national exchange will increase the liquidity of our common stock by providing us with a market for our common stock that is more accessible than if our common stock were to continue to trade on the OTCQB or on the “pink sheets” maintained by the OTC Markets Group, Inc. If the Board of Directors believes that a discretionary reverse stock split is in the best interests of the Company and its shareholders, it will consider certain factors in selecting the specific reverse stock split ratio, including prevailing market conditions, the trading price of our common stock and the steps that we will need to take in order to meet the initial listing bid price requirement and other listing regulations of the Nasdaq Stock Market or other national exchanges. We currently do not expect to list our securities on the Nasdaq Stock Market or other national exchange until after we have filed our Annual Report on Form 10-K for the year ending December 31, 2021.

Liquidity and Management’s Plans

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. At August 31, 2020,June 30, 2021, the Company had cash and cash equivalents of $373,378$582,304 and has not yet generated any revenues. Therefore, our ability to continue our operations is highly dependent on our ability to raise capital to fund future operations. We anticipate, based on currently proposed plans and assumptions that our cash and cash equivalents on hand will not satisfy our operational and capital requirements through twelve months from the filing date of this quarterly report on Form 10-Q.

There are a number of uncertainties associated with our ability to raise additional capital and we have no current arrangements with respect to any additional financing. In addition, the continuation of disruptions caused by COVID-19 may cause investors to slow down or delay their decision to deploy capital based on volatile market conditions which will adversely impact our ability to fund future operations. Consequently, there can be no assurance that any additional financing on commercially reasonable terms, or at all, will be available when needed. The inability to obtain additional capital will delay our ability to conduct our business operations. Any additional equity financing may involve substantial dilution to our then existing stockholders. The above matters raise substantial doubt regarding our ability to continue as a going concern.

2.        Significant Accounting Policies

Basis of Presentation

As a result of the Reverse Merger, Private Mosaic’s historical results of operations replaced PTSC’s historical results of operations for all periods prior to the Reverse Merger and, for all periods following the Reverse Merger, the results of operations of the combined company will be included in the Company’s consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. All intercompany accounts and transactions have been eliminated.

In conjunction with the Reverse Merger, Private Mosaic’s historical results of operations replaced PTSC’s historical results of operations for all periods prior to the Reverse Merger and, for all periods following the Reverse Merger, the results of operations of the combined company are included in the Company’s unaudited condensed consolidated financial statements. Since Private Mosaic was incorporated on March 30, 2020, prior year financial information covers the period March 30, 2020 (date of inception) to June 30, 2020. In addition, operating results for the three months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the results for the interim period presented. Operating results

Segment Reporting

The Company manages its operations as a single operating segment for the three months ended August 31, 2020purposes of assessing performance and making operating decisions. No revenue has been generated since inception, and all tangible assets are not necessarily indicative ofheld in the results that may be expected for the fiscal year ending May 31, 2021.United States.

Reverse Merger

On August 21, 2020, Private Mosaic completed a Reverse Merger with PTSC pursuant to which Private Mosaic merged into PTSC (see Note 1). Due to the nominal assets and limited operations of PTSC prior to the Reverse Merger, the transaction was treated as a reverse acquisition under the provision of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 whereby Private Mosaic became the accounting acquirer (legal acquiree) and PTSC was treated as the accounting acquiree (legal acquirer). As the transaction was treated as a reverse asset acquisition, no intangibles, including goodwill, were recognized. The net tangible assets acquired and liabilities assumed totaled $374,435 which were acquired by Private Mosaic in connection with the transaction and arewere recorded at their estimated acquisition date fair values as of the Closing Date, as follows:

Cash and Cash Equivalents

We consider all highly liquid investments acquired with a maturity of three months or less from the purchase date to be cash equivalents.

Investment in Affiliated Company

We havehad a 50%50% interest in Phoenix Digital Solutions LLC (“PDS”). We account for our investment usingOn September 29, 2020, the equity methodmanaging members of accounting sincePDS agreed to wind up and dissolve PDS as the investment provides usunderlying intellectual property was not deemed enforceable by the abilitymanaging members. In January 2021, the remaining assets of PDS were distributed to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the investee and is recognized in the condensed consolidated statements of operations in the caption “Equity in earnings (loss) of affiliated company” and also is adjusted by contributions to and distributions from PDS. We review our investment in PDS to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. If the decline in value is deemed to be other than temporary, we would recognize an impairment lossits members (see Note 4).

Financial Instruments and Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents.

We invest our cash and cash equivalents primarily in money market funds. Cash and cash equivalents are maintained with high quality financial institutions, which are regularly monitored by management. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. We perform ongoing evaluations of these financial institutions to limit our concentration of risk exposure.

Fair Value of Financial Instruments

Our financial instruments consist principally of cash and cash equivalents, accounts payable, accrued payable to founders, derivative liability, accrued expenses and other, and convertible notes. The carrying value of these financial instruments, except for the derivative liability and convertible notes, approximates fair value because of the immediate or short-term maturity of the instruments. We record the derivative liability at fair value (see Note 3). The convertible notes are initially recorded at their amortized cost and are being accreted to their redemption value over the estimated conversion period using the effective interest method (see Note 7).

Use of Estimates

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates in these unaudited condensed consolidated financial statements include those related to the fair value of the anti-dilution issuance rights liability (derivative liability), investment in affiliated company,the timing of conversion of the convertible notes, the provision or benefit for income taxes and the corresponding valuation allowance on deferred tax assets. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. On an ongoing basis, the Company evaluates its estimates, judgments, and methodologies. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Due to the inherent uncertainty involved in making such accounting estimates and assumptions, the actual financial statement results could differ materially from such accounting estimates and assumptions.

Convertible Notes

The Company follows ASC 480-10, “Distinguishing Liabilities from Equity” in its evaluation of the accounting for share-settled debt. ASC 480-10-25-14 requires liability accounting for certain financial instruments, including shares that embody an unconditional obligation to transfer a variable number of shares, provided that the monetary value of the obligation is based solely or predominantly on one of the following three characteristics:

Patent Costs

Patent related costs in connection with filingMoreover, equity classification was not an appropriate classification for the convertible notes because the underlying terms of the convertible notes do not expose the investors to risks and prosecuting patent applicationsrewards similar to those of an owner and, patents filed bytherefore, do not create a shareholder relationship. Pursuant to ASC 835-30, the Company are expensed as incurredconvertible notes were initially recorded at their amortized cost and are classified as general and administrative expenses inbeing accreted to their redemption value over the accompanying unaudited condensed consolidated statements of operations.

Income (Loss) Per Share

Basic income (loss) per share includes no dilution and is computed by dividing income (loss) available to common stockholders byestimated conversion period using the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.

For the quarter ended August 31, 2020, the issuance of 3,612,536,340 shares of common stock upon the conversion of Series A Preferred and Series B Preferred were excluded in the calculation of diluted loss per share as the impact was anti-dilutive during periods of net loss.

In connection with an acquisition of Crossflo by PTSC, 2,844,630 escrow shares were issued that are contingent upon certain representations and warranties made by Crossflo. We exclude these escrow shares from the basic income (loss) per share calculations and would have included the escrowed shares in the diluted income per share calculations if we reported net income.

Income Taxes

We follow authoritative guidance in accounting for uncertainties in income taxes. This authoritative guidance prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return and also provides guidance on derecognition, classification,effective interest and penalties, accounting in interim periods, disclosure and transition. Under this guidance, we may only recognize tax positions that meet a “more likely than not” threshold.

We follow authoritative guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios in which they may be realized through future income.

In addition, utilization of our net operating loss carry forwards may be subject to an annual limitation due to ownership change limitations that may have occurred as a result of the Reverse Merger, or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of the net operating loss carry forwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a Company by certain stockholders. Moreover, since we will need to raise substantial additional funding to finance our operations, we may undergo further ownership changes in the future, which could further limit our ability to use net operating loss carryforwards. As a result, if we generate taxable income, our ability to use some of our net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could result in increased future tax liability to us.

With the exception of refundable income taxes, we have determined that it was more likely than not that all of our deferred tax assets will not be realized in the future due to our continuing pre-tax and taxable losses in addition to the potential loss of deferred tax assets as a result of the Reverse Mergermethod (see Note 1)7). As a result of this determination, and with the exception for the aforementioned refundable income taxes, we have recorded a full valuation allowance against our deferred tax assets.

Assessment of Contingent Liabilities

We may be involved in various legal matters, disputes, and patent infringement claims which arise in the ordinary course of our business. We accrue for any estimated losses at the time when we can make a reliable estimate of such loss and it is probable that it has been incurred. By their very nature, contingencies are difficult to estimate. We continually evaluate information related to all contingencies to determine that the basis on which we have recorded our estimated exposure is appropriate.

Segment DataShare-Based Compensation

We account for restricted stock units (“RSUs”) and other share-based awards granted under our equity compensation plan in accordance with the authoritative guidance for share-based compensation. The fair value of RSUs is measured at the grant date based on the closing market price of our common stock on the date of grant and is recognized as expense on a straight-line basis over the period of vesting. Forfeitures are recognized as a reduction of share-based compensation expense as they occur. At June 30, 2021, there were no outstanding share-based awards with market or performance conditions.

In addition, we periodically grant RSUs to non-employee consultants, which we account for in accordance with the authoritative guidance for share-based compensation. The cost of non-employee services received in exchange for share-based awards are measured based on either the fair value of the consideration received or the fair value of the share-based award issued, whichever is more reliably measurable.

Basic and Diluted Income (Loss) Per Common Share

Basic income (loss) per common share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing our net income (loss) available to common stockholders by the sum of the weighted average number of common shares outstanding during the period, plus the potential dilutive effects of unvested RSUs and shares of common stock expected to be issued under our Series A Preferred and Series B Preferred outstanding during the period.

The Company manages its operationspotential dilutive effect of unvested RSUs outstanding during the period are calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive. The potential dilutive effect of our Series B Preferred outstanding during the period is calculated using the if-converted method assuming the conversion of Series B Preferred as a single operating segmentof the earliest period reported or at the date of issuance, if later, but are excluded if their effect is anti-dilutive.

The following table presents the securities excluded from the calculation of diluted net income (loss) per share for the purposes of assessing performancethree and making operating decisions. No revenue has been generated since inception,six months ended June 30, 2021 and all tangible assets are held in the United States.

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows – Classification of Certain Cash Receiptsthree months ended June 30, 2020 and Cash Payments.” ASU 2016-15 provides guidance intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The issue addressed in ASU 2016-15 that will affect the Company is classifying distributions received from equity method investments. The guidance provides an accounting policy election for classifying distributions received from equity method investments using either a cumulative earnings approach or a nature of distributions approach. The Company adopted this standard onperiod March 30, 2020 (date of inception). The adoption did not to June 30, 2020, as the effect of their inclusion would have a material effect on the Company’s consolidated financial statements.been anti-dilutive during periods of net loss:

In November 2016,Moreover, in connection with an acquisition of Crossflo by PTSC (see Note 1), 5,690 escrow shares were issued that are contingent upon certain representations and warranties made by Crossflo. We exclude these escrow shares from the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. ASU 2016-18 requires that a statement of cash flows explainbasic income (loss) per share calculations and would have included the change during the periodescrowed shares in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard on March 30, 2020 (date of inception). Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized indiluted income per share calculations if we reported net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The accounting standard update also updates certain presentation and disclosure requirements. The Company adopted ASU 2016-01 on March 30, 2020 (date of inception). Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, as amended ("ASC 842"), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASC 842 effective March 30, 2020 (date of inception). As permitted under the transition guidance, the Company will carry forward the assessment of whether its contracts contain or are leases, classification of its leases and remaining lease terms. Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.income.

Recently Adopted Accounting Standards

In August 2018,December 2019, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement2019-12, “Income Taxes (Topic 820)740): Disclosure Framework - Changes toSimplifying the Disclosure RequirementsAccounting for Fair Value Measurement”Income Taxes” (“ASU 2018-13”2019-12”), which removes, modifies,simplifies the accounting for income taxes by removing certain exceptions and adds various disclosure requirements on fair value measurementsimproving consistent application in certain areas of Topic 820.740. ASU 2018-132019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early2020, however, early adoption is permitted upon issuance of this update.permitted. The Company adopted ASU 2018-13 effective March 30, 2020 (date of inception).January 1, 2021. Implementation of this guidance did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

3.        Fair Value of Financial Instruments

The Company’s financial instruments consist of money market funds as well as an anti-dilution issuance rights liability pursuant to the License Option Agreement with Case Western Reserve University (“CWRU”) (see Note 6). The anti-dilution issuance rights meet the definition of a derivative under FASB’s ASC Topic 815 and the liability is carried at fair value.

Under this authoritative guidance, we are required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We determine fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment or valuations by third partythird-party professionals. The three levels of inputs that we may use to measure fair value are:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following tables set forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy:hierarchy as of June 30, 2021 and December 31, 2020: